Agriculture: Liberalization needs to address socio-economic effects

by Chakravarthi Raghavan

Geneva, 29 Apr -- Negotiations for liberalization of agricultural trade should take into account its socio-economic effects on developing countries - such as employment, fall in production, problems of food security and negative effects on income of farmers, food insufficiency -- an expert meeting at UNCTAD has agreed.

The three-day meeting of experts (chaired by Hungary's Sandor Simon), focusing on a range of issues in the mandated negotiations for continuation of the reform process under the WTO's Agreement on Agriculture, saw a greater focus on the problems of developing countries and the development of their agricultural sector that the Uruguay Round negotiations failed to address.

The Uruguay Round negotiations became largely one between the EC (and other Europeans and Japan and Korea) on the one side and the US with the Cairns group on the other, with other developing countries mostly bystanders, fobbed off with non-operationalised provisions about special and differential treatment.

In the information exchange process at the WTO, several of the developing countries have come up with issues about their "non-trade" concerns like food security, the "multi-functional" nature of agriculture and various elements of state support for agricultural development.

Initially, some of these met with opposition of some Cairns group countries - particularly because these terms have been used by the EC, Norway, Japan etc to justify their agricultural protection policies.

But the UNCTAD meeting suggested that the Cairns group has at least changed tactics, and are now supportive of the problems of developing countries in the agricultural sector - viewing terms like "non-trade" concerns and "multi-functional" nature of agriculture as legitimate development issues for developing countries, but disguised "protectionism" in respect of the developed countries.

In this view, the "non-trade" concerns of developing countries (food security through increased production, food sufficiency, rural employment to provide purchasing power etc) and the "multi-functional" nature of Third World agriculture, should be accommodated through the Special and Differential (S&D) treatment, with some operational content and commitments.

In the discussions, a number of developing country experts from capitals, presented details of their experiences in the agricultural agreement, and the contradictions between the measures they could take under the agreement, but which were blocked by the Fund/Bank structural adjustment programs.

An expert from one of the EU countries, noted that the Uruguay Round agreement in agriculture was one largely negotiated by the US and the EC, and at the last minute some of the developing country concerns were sought to be addressed through the special and differential treatment provisions. But these were not operationalised. The expert felt that in the upcoming negotiations, the special features of agriculture would have to be borne in mind and the sector protected. However, support to agriculture in Europe could be done in ways that did not have a negative effect on the developing countries.

A number of Cairns group members took the position that developing countries could not be asked to open up their markets and provide market access, so long as the exports of developed countries were "subsidised".

In the agreed conclusions, the expert meeting said that while some developing countries have been able to improve their competitive position and exploit opportunities arising from global agricultural trade liberalization, including the Agreement on Agriculture, "many developing countries, especially the least developed countries, are lacking the capacity to do so".

They require resources to assist their producers, majority of whom are small-scale farmers, with improved production infrastructure, improved seeds and chemical inputs, irrigation and improved production technology to improve productivity.

For these purposes, developing countries need resources (e.g. long-term credit) for financing incremental working capital, investment and insurance; efficient and cheap freight, transport and shipping of their products; technology and information to meet consistently marketing requirements including product quality standards, Sanitary and Phytosanitary (SPS) requirements, other technical standards (like packaging and labelling), and modern marketing and distribution infrastructures and skills to improve their competitive positions. There is also need to take into account the socio-economic effects of agricultural liberalization in developing countries:

* In those with a majority of working population in agricultural sector and the majority are small-scale poor farmers, any fall in agricultural production could lead to problems of food security and to a large negative income effect on farmers, and thus to macroeconomic problems (e.g. high unemployment, rapid urbanization resulting in increased poverty, crime, etc.), as well as food insufficiency.

* in resource-poor countries (e.g. small island developing countries and other small vulnerable economies) increases in agricultural imports can have a devastating effect on the viability of the agricultural sector. * LDCs and Net Food-Importing Developing Countries (NFIDCS) acutely face the problem of food security, including food aid, and difficulties in meeting their food import requirements.

* some developing countries which periodically become the victims of natural disasters require assistance to rehabilitate their agricultural production as quickly as possible.

Identifying some of the issues and suggestions for possible actions, the agreed conclusion said that in the area of market access, high agricultural tariffs in general, and tariff peaks in particular, applied by some WTO members, are still very important barriers to products of identified export interest to developing countries.

Tariff escalation hinders diversification from primary commodity production to agricultural processing industry, which has been growing at the fastest rate in the world agricultural trade in recent years.

There was a need to identify possible tariff reduction formulae, taking into account, inter alia, those used in the industrial sector, to be employed in the next reform process, with a view to effectively addressing problems of generally high agricultural tariffs, tariff peaks and tariff escalation, the experts said. And UNCTAD should continue its studies on possible approaches to tariff reduction in this area.

The complexity of the structure of tariffs in the agricultural sector could be reduced, and its transparency could be improved, by conversion of all tariffs to ad-valorem rates. Certain measures (e.g. reference prices) still exist in the agricultural sector, despite the tariffication process.

Tariff rate quota (IRQ) administration has been complex, in many cases lacking transparency, and has provided limited trading opportunities to new suppliers particularly from developing countries. Guidelines on TRQ allocation and administration methods or alternative means of achieving the same ends would be helpful. Increases in TRQ quantities and further tariff reductions within the TRQs would enhance market access opportunities.

Erosion of preferential market access can be harmful to certain developing country exporters. Efforts should be made to find additional ways and means to improve the market access for products of export interest to those countries.

Certain aspects of sanitary and phytosanitary (SPS) measures and other technical barriers to trade (TBT) can have serious effects on the exports of developing countries.

Discussions were needed on the future of the Special Safeguard (SSG) provision, which has been applied often against exports from developing countries. Most developing countries have not claimed any Aggregate Measurement of Support (AMS), while developed countries continue to provide direct payments under production-limiting programmes and other trade-distorting support within the AMS limit. Many developing countries face financial constraints in providing even the de minimis level of domestic support required for enhancing agricultural production and productivity.

The current provisions on domestic support do not clearly define how certain problems, such as the treatment of negative AMS and "excessive" inflation, should be dealt with. This reduces the flexibility that was provided to developing countries during the Uruguay Round to address their domestic policy concerns.

Certain development concerns may not be adequately addressed in the Green Box criteria. Further discussions may be required to identify how developmental aspects of domestic support measures in developing countries could be incorporated in the domestic support commitments, e.g. through increased flexibility in the level and the use of de minimis support; establishing green-box-type criteria for developmental measures.

"Many developing countries have been facing policy constraints arising from incoherence between the rules regarding domestic support under the Agreement on Agriculture and measures imposed under the Structural Adjustment Programmes," the experts said and advocated further consideration should be given to this problem.

Export subsidies have in many cases displaced developing country exports, and have been especially damaging to small-scale producers in developing countries, who have no resources to compete against subsidized exports from other countries, the experts agreed.

Export subsidies increase instability and variability of prices on the world agricultural market, with consequent serious effects on developing countries exporters. UNCTAD should analyze the impact of substantial reduction or elimination of export subsidies, with a particular attention to effects, both positive and negative, on LDCS, NFIDCs and other small and vulnerable economies.

Certain uses of export credits, guarantees and insurance have a negative effect on prices and competition in the world agricultural market.

On 'non trade concerns' the experts said that specific non-trade concerns of developing countries need to be taken into account in the continuation of the reform process.

The concept of "multifunctionality" should be further discussed and clarified.

The negotiations to continue the reform process should define measures to provide special and differential treatment to developing countries in a manner which responds to their own specific needs, taking into account the level of economic development, the role of agriculture in the economy and society, and differing production conditions.

S&D treatment could focus on specific features of market access, increased productivity, food security, the need to protect small farmers, the special situations of small island developing countries, landlocked countries, small and vulnerable economies and developing countries with large segments of the population dependent on the agricultural sector for employment.

In formulating S&D provisions, which could include, inter alia, greater flexibility, particularly with respect to domestic support commitments, and to safeguarding their food production, the experience of developing countries in adapting to the present reform process should be taken into account.

UNCTAD, in cooperation with other relevant organizations, should identify specific situations in which S&D is required, and articulate appropriate measures.

Actions pursuant to the Marrakesh Decision Concerning the Possible Negative Effects of the Reform Programme on LDCs and NFIDCs should be made more concrete, the experts said. Financial and technical assistance by international financial institutions foreseen in this Decision should be consistent with the letter and the spirit of the Decision.

Referring to SPS and TBT issues, the experts said that some SPS measures have been applied with greater stringency or have had more disruptive effects to exports from some developing countries than those from developed countries. The current SPS Agreement allows a country to introduce and maintain a SPS measure which is stricter than the corresponding international standard if there is scientific justification. This may lead to a proliferation of different SPS measures in different markets.

Technical support provided pursuant to the SPS and the TBT Agreements needs to be increased.

The use of other technical measures (e.g. those based on Production and Processing Methods and ecolabeling) appears to be increasing, with consequent effects, among others, on production costs and the competitive advantage of developing countries.

Referring to the problems of countries seeking accession to the WTO, the experts said that the special requirements and needs of countries acceding to WTO, particularly LDCs, should be taken into account, with a view to their obtaining the same rights as other WTO members. (SUNS4426)

* Chakravarthi Raghavan is the Chief Editor of the South-North Development Monitor (SUNS) in which the above article first appeared.

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